Wind power giant appoints India scout

Thursday, February 03, 2011

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A rapid growth in India is strategic to Gamesa, which built its wind equipment unit in Chennai in 2010, as it expects to increase India’s contribution to 6% of its total incremental power generation by 2013.

Spain’s largest wind power equipment maker Gamesa Corporación Tecnológica SA, or Gamesa Corp., has appointed investment bank Morgan Stanley India Co. Pvt. Ltd to scout for wind power assets in India, two people familiar with the development said.

A senior executive from Morgan Stanley confirmed the mandate, but refused to disclose the identity of potential targets.

Another banker, who lost the mandate to the Indian arm of the US bank, also confirmed the appointment of Morgan Stanley.

“I cannot tell you anything about the deal as there is client confidentiality. I cannot reveal the nature and value of the assets (in which) the company is interested,” the Morgan Stanley official added, asking not to be identified.

“We have no comments to offer,” said A. Gurunathan, Gamesa Corp.’s Indian subsidiary Gamesa Wind Turbines Pvt. Ltd’s spokesperson, responding to an email query to the company’s chairman Ramesh Kymal.

A rapid growth in India is strategic to Gamesa, which built its wind equipment unit in Chennai in 2010, as it expects to increase India’s contribution to 6% of its total incremental power generation by 2013.

Besides India, the company has identified Turkey, China and Britain as growth markets in its 2011-13 business plan, which is on its website.

Gamesa, listed on Spanish stock exchange Ibex 35, said it will attain 800MW of capacity in India by 2013 and plans to build five new plants there between 2010 and 2012.

Many companies from Spain and Germany are looking at expanding beyond home markets, said Arvind Mahajan, executive director (energy and natural resources) at audit and consulting firm KPMG India Pvt. Ltd. “They (European companies) are focusing on adding assets either organically or inorganically in renewable energy space—solar and wind,” he added.

The Spanish wind power company, which competes with Suzlon Energy Ltd and multinational firms such as Siemens and Vestas, provides operation and maintenance to windmills.

Two weeks ago, Indian television channels reported that the company was in talks to purchase Suzlon’s assets in India; this was later denied by the Indian company.

A week later, Tulsi Tanti, in a telephonic interview with Mint from China before boarding flight to Davos to attend the World Economic Forum, said he had no plans to sell his stake in his company.

Suzlon, which got a two-year moratorium from lenders to repay Rs.14,750 crore, will instead bet on orders from emerging markets—China, India, Brazil and South Africa—marking a shift from its earlier focus on developed markets.

“In Europe, the buyers were large utility companies who bought equipment from us and squeezed our margins,” Tanti said and added that these deals usually didn’t come with contracts to maintain the windmills, one way in which companies such as Suzlon and Gamesa add to revenue.

“In emerging markets, we provide equipment and build windmills for Indian companies, and have management contracts to maintain these windmills,” he said. “We have a unique business model in India which provides end-to-end solutions for wind power customers that will gives us better margins.”

Tanti, 53, expects these orders and his firm’s leadership position to throw up enough cash to repay debt. Suzlon’s order book in October stood at 3,840MW, valued at $5.4 billon (around Rs. 24,735 crore today).

Tanti, who runs the business along with his two brothers, claimed the proportion of new orders from emerging markets were on the rise.

Last week, Suzlon won an order from Caparo Energy Ltd to develop a 1,000MW wind power plant. Earlier in January it won an order for a 150MW plant for Hindustan Zinc Ltd, a company owned by London-listed Vedanta Resources Plc, and a 218MW plant for Martifer Renováveis Geração de Energia e Participações SA, a Brazilian company. The orders swelled its order book to $6 billion.

Suzlon’s rival Gamesa is hoping the US market will account for 25% of the orders it receives between 2011 and 2013, and China, 32%. It is looking to increase capacities in key emerging markets, including India, and wants to start manufacturing locally to reduce costs.

“There are advantages of setting up greenfield projects as you can bring in your own culture, but these companies want to grow quickly by acquiring big assets than aggregating smaller ones,” said Mahajan of KPMG, referring to the growth plans of European energy firms. “You will see the global majors acquiring assets in India, China, Brazil and parts of Latin America.”

The Spanish company seems to be positive about the Indian regulatory regime. The government gives incentives for wind power generation, the company said in its business plan.

“The outlook is that there will be 10% contribution of renewable energy sources by 2015 (in India) and the national renewable energy policy is currently under consideration in India,” the company said in its business plan.